News

Weekly Economic Commentary

Monday July 4, 2016

As with the Brexit outcome in June, there was another result over the weekend where the bookies’ odds proved quite misleading, with the final outcome of the Federal election still unclear. With 78% of the vote now counted and very limited further counting before Tuesday, the final outcome is not going to be known until later in the week.

Most commentators assess the Coalition government as having its nose slightly in front, with the main issue being whether it can achieve the 76 seats required to form an absolute majority government. If not, it will require negotiation with minor parties in both Houses of Parliament as 5 seats appear likely to be held by minor parties in the Lower House and perhaps as many as nine by minor parties in the Upper House.

The official Australian Electoral Commission website would suggest that the Coalition government could struggle to form government again in its own right, although Prime Minister Turnbull is hopeful that postal votes could see him returned to office. At this stage, a hung parliament seems most likely, with the Coalition a probability to form a minority government, but the ALP still a possibility.

This Tuesday’s Reserve Bank meeting will be the first major central bank meeting since the Brexit vote. After moving to a more neutral stance at the May meeting, this month’s accompanying statement will most likely mention Brexit and the associated market volatility. However it does not guarantee that the RBA Board will send a definitive signal about monetary policy or an August rate cut. This means that there is a high hurdle for the RBA to clear in order to justify current market pricing, which has a 65% probability of a rate cut at the August meeting and a terminal rate of 1.4%.

Disclaimer: Whilst all care has been taken in compiling the information, the information should not be relied upon as substitute for professional advice where necessary. Rural Bank Limited accepts no responsibility for the accuracy, completeness or timeliness of the information and disclaims all liability in relation to any loss or damage suffered by the use of or reliance upon any information contained herein or in any attachment or annexure hereto by any person. Rural Bank Limited ABN 74 083 938 416 AFSL 238042.